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Health Capital Group Warns of Fallout to Hospitals From the Subprime Mortgage Crisis and Urges Hospitals to Immediately Reassess Existing Debt Structures and Capital Financing Plans
Date:1/25/2008

CHICAGO, Jan. 25 /PRNewswire/ -- James Unland, President of the Chicago-based Health Capital Group, urged hospitals' top managements and boards to take a hard look at their existing debt instruments, their obligations and their capital and debt planning in light of recent capital market developments.

Problems with some major banks and bond insurers have already affected the hospital bond markets and are expected to do so for some time to come, resulting in both debt pricing and access to capital challenges for many hospitals. Numerous hospitals have used one form or another of variable rate and/or interim bond financing, including tax-exempt short and medium maturity paper of one kind or another, often backed up by bank letters of credit, bond insurance or both. Bond insurance has also backed some longer term hospital debt.

"The feds' lowering of a key interest rate this week and moves by Congress and the President are not going to remove some fundamental and very serious problems in the financial sector, problems resulting from billions of dollars of essentially unsound home mortgage loans that were then repackaged and sold as securities with inadequate due diligence by some key market gatekeepers," said Unland. "Some people, including myself, believe that much of the federal government's action is more along the lines of 'feel good' political moves than truly corrective of the underlying dysfunctions and could, in fact, backfire in the form of markedly higher inflation down the road."

He urged hospitals to involve their key board members and to step back and think about the essence of what creates value, viability and stability in their important community service businesses.

"My message to hospitals: be objective, seek a wide range of advice, and think longer term. Don't be afraid to consider more conservative financing mechanisms such as fixed rate term debt even though exotic variable rate instruments have been the rage," added Unland. "The ability of hospitals to budget dependably amidst what I believe to be strong medium and longer term inflationary pressures is a benefit that needs to be taken into account both with respect to a hospital's existing capital structure and with respect to its future capital planning."


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SOURCE Health Capital Group
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